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EURUSD: Will the Fed Spoil an Otherwise Perfect Setup?

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So far the EURUSD has reacted according to plan. After closing below the confluence of support at 1.1200 last Friday, the area has served as resistance over the past 48 hours.

Under normal circumstances, I would have sold yesterday’s rally into the 1.1200 area. But with the FOMC on tap for what promises to be their most important decision since December of last year, today’s session is far from normal.

As is the case with every trade setup that develops ahead of substantial event risk, if I can get a favorable entry once the dust settles, I’ll take it. If not, I will look to enter on a break above or below the next key resistance or support level respectively.

It’s really that simple. I would rather give up 100 pips of profit knowing that my capital is safe than to gamble ahead of a market mover such as FOMC in an effort to boost potential gains.

One thing to keep in mind when dealing with an increase in volatility is the distance between the current price and the mean. In other words, avoid buying or selling when prices have become overextended. For this, I use a simple moving average combination.

With this in mind and judging by the last eighteen months of price action for the EURUSD, even a sudden move toward the 1.1060 area is likely to experience a bounce before eventually continuing lower. We’ve witnessed this type of mean reversion play out time and time again since March of 2015.

The chart below illustrates the levels I’m watching as we head into today’s main event which kicks off at 2 pm EST. As always, stay patient and trade safe.

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eurusd-short-setup

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